Osborne cuts tax for 24m low and middle earners

Tim Wallace
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AN EXTRA 400,000 people were dragged into the higher rate of income tax today as the government adjusts the thresholds at the start of the new financial year.

But at the bottom end of the income scale more than 24m people will benefit from lower tax payments as the tax-free allowance gets its biggest increase ever.

At the top end of the income scale, the government’s decision to reduce the top rate of tax from 50 per cent to 45 per cent will start to benefit higher earners from this month.

The changes to the tax and benefit system will see household benefits capped at £26,000 per year, while the tax threshold for pensioners and workers will move closer together.

From this month earners will only start paying income tax at £9,440 per year, a record hike in the threshold from £8,105 previously.

It forms part of a wider plan to raise the threshold to £10,000, though national insurance contributions still hit much of that income.

However the higher rate threshold is being pulled down to stop those at the top of the bracket from gaining from the increased allowance – workers will now pay the 40p rate on income above £41,450.

The change takes another 400,000 people into the higher bracket making a record total of 4.3m paying 40 per cent.

Meanwhile the threshold for pensioners will rise below the rate of inflation, meaning 4.3m retirees will be an average of £83 per year worse off.

Tax credits and other working-age benefits are also lagging behind inflation with a one per cent rise, while child benefits are frozen for the third consecutive year.

Together those mean a real fall in benefit payments for 9.7m households.


  • Tax-free allowance hiked £1,335 to £9,440 per year helping 24m people.
  • Start of 40p bracket lowered to £41,450 hitting 400,000 people
  • The top rate of tax comes down to 45p
  • Total benefits capped at £26,000 per household per year, roughly the average working income.
  • Pensioners’ tax threshold up below inflation to move closer to workers’ level.